How to Start a Staffing Company

Start a staffing company by following these 10 steps:

1. Plan your Staffing Company
2. Form your Staffing Company into a Legal Entity
3. Register your Staffing Company for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Staffing Company
6. Get the Necessary Permits & Licenses for your Staffing Company
7. Get Staffing Company Insurance
8. Define your Staffing Company Brand
9. Create your Staffing Company Website
10. Set up your Business Phone System

We have put together this simple guide to starting your staffing company. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

What are the costs involved in opening a staffing company?

Launching a staffing company takes time and capital. Many new entrepreneurs start out as the sole employee, working out of a home office. This helps conserve the business’s cash flow, eliminating the need for an expensive office space. When mapping out your business plan, include the following items in your budget:

• Computer(s)
• High-speed internet
• Website and marketing strategy
• Dedicated telephone line
• Insurance and permits
• Tool for payment processing

While not a requirement for setting up your business, you will want to consider investing in the following business tools prior to opening your agency:

• Customer Relationship Management System (CRM) — Enhances collaboration, communication, and the sharing of information with clients.
  
  
• Applicant Tracking System (ATS) — Automates business procedures, assists in screening applicants, and keeps records organized.
  
  
• Social Collaboration Tools — Integrates with existing social media procedures and ensures you remain up-to-date on critical information regarding job openings, candidates, and hiring companies.

When launching your staffing company, it is critical that you plan for all cash flow needs. Many fail to realize that they are responsible for workers’ compensation insurance and paying employees they have placed with a client. Since it can take four to six weeks for a client to settle any debts with you, you will need to plan for your future cash flow needs. Industry leaders recommend adding another layer of protection by partnering with a reputable payroll service before placing your first employee.

What are the ongoing expenses for a staffing company?

In addition to the standard overhead costs of rent, utilities, insurance, website management/hosting, and marketing, you will need to maintain a steady cash flow to cover payroll. This includes both your agency’s employees and the people you have placed for your clients. You should plan to maintain a minimum of three months’ worth of expenses to ensure payroll is met and bills are paid in a timely manner.

Who is the target market?

Unlike most businesses, your target market is twofold — you will need to attract the attention of both clients and potential job candidates in order to collect any placement fees.

How does a staffing company make money?

A staffing company makes money by charging hiring companies a fee for services provided, including recruiting, vetting, testing, and placing new hires. Many agencies also take on the responsibility of performing human resources and/or administrative duties. In most situations, the new hire is considered an employee of the agency for a specified period of time. They are responsible for handling the new hire’s payroll until the end of the contract, at which time the employer has the option of placing the employee in a full-time position or letting them go. 

Staffing companies often collect a portion of the worker’s hourly wage as part of their fee. For example, the staffing company might charge their client $15 an hour, with the worker earning $12 an hour and the staffing company keeping the $3 difference as a fee.

How much can you charge customers?

Fees vary depending on a variety of factors. Staffing companies charge anywhere from 25% to 100% of the newly hired employee’s wages. For example, if you’ve agreed to a markup of 50% and the employee earns an hourly wage of $15, you will earn $22.50 per hour for your work. This article by Advent Talent Group offers valuable insight into pricing for maximized profit.

How much profit can a staffing company make?

Total annual profits vary based on the size of the company, number of clients, number of employees, and markup fees. Experts estimate, however, that the average profit for a staffing agency is approximately $750,000 annually.

How can you make your business more profitable?

Business owners looking to maximize profits must consistently work to ensure they provide every client with top-notch service. This means keeping candidate data up-to-date and maintaining a steady stream of quality talent. Industry leaders recommend choosing orders carefully. Focus on high-margin, long-term contracts and turn down the jobs that will not prove profitable. Lastly, invest in your own talent — a highly-skilled recruiter will help ensure your business and profits grow exponentially.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your staffing company is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

Are you a job recruiter with a dream of someday starting your own staffing company? Do you enjoy the positive impact your work has on both candidates’ and clients’ lives? Do you have fresh ideas that you believe could make a difference in the recruitment industry? If you answered yes to any of these questions, it might be time to branch out and launch your own staffing company.

What happens during a typical day at a staffing company?

Your job as a recruiter is to serve the needs of two parties — the hiring organization and individuals seeking new job opportunities. The bulk of your day will be spent building and maintaining strong professional relationships. This means answering phone calls and emails, addressing client questions and concerns, collaborating with hiring companies to identify their unique needs, and sifting through ads and online job platforms for job candidates.

Once you feel you have a viable list of candidates, you’ll conduct interviews and supervise any tests required by the hiring company. This vetting process helps weed out the weak links, hopefully leaving you with several candidates to move on to the next phase of the hiring process. Your client’s hiring manager typically takes over at this point, setting up interviews and making a final decision regarding each applicant. If they choose to hire one of the individuals you suggest, it may be necessary for you to negotiate employee salaries. You will also need to fill out new hire paperwork. If the hiring manager chooses not to hire the candidates you’ve presented, it’s back to the drawing board to look for another round of potential new hires.

What are some skills and experiences that will help you build a successful staffing company?

To realize long-term success in this industry, you must be customer service oriented and possess the ability to communicate with people from all backgrounds. Your clients count on you to listen to their job fulfillment needs and locate the best candidate for the job. Therefore, it is critical that you have exceptional listening skills and be a skilled researcher. Most entrepreneurs launching their own staffing company have at least four years of industry experience and understand what it takes to manage every aspect of a business. Human resources experience will also help set you apart from the competition.

Since each of these skills are important, individuals considering embarking on this business endeavor are encouraged to examine their skill set and identify any gaps. Experienced professionals should then be hired to ensure a well-rounded and strong agency.

What is the growth potential for a staffing company?

According to the American Staffing Association, staffing agencies hire approximately 16 million contract and temporary employees each year, bringing in over $126 billion in revenue. These numbers are expected to rise over the next few years, offering plenty of opportunities for startups to realize significant growth and profits.